Cryptomarkets: what about consumer protection?

Published on 8 July 2021

Trading and investments in cryptoassets, but also the use of cryptoassets in everyday financial transactions have increased rapidly in the recent period. The pace of growth and development of markets in cryptoassets is considerably faster than the necessary development of the regulatory framework governing these markets. As a consequence, the level of protection of cryptoasset users and investors is at the moment much lower than that of standard financial services users, although regulatory and supervisory arrangements regarding cryptomarkets are currently being established at the EU-level. Hanfa has informed the public of this matter, in particular of risks related to investments in cryptoassets, on several occasions. (Informacija o rizicima ulaganja u kriptovalute i ICOInformacija o virtualnim valutama i rizicima ulaganja u virtualne valuteIzraženi rizici na kripto tržištu zahtijevaju pojačan oprezHanfa upozorava: Pripazite na Facebook oglase o ulaganju u službenu kinesku kriptovalutu). Given that the cryptomarkets and classical financial markets are becoming more and more intertwined through innovative (crypto)financial products, some national regulators have taken certain regulatory measures (United KingdomGermany) relating to cryptoproducts and services of Binance, a company also present on the Croatian market via its cryptoplatforms.

Why has Binance come into the focus of regulators?

Binance is one of the largest world cryptocurrency exchanges, whose average daily trading volume, pursuant to some information, exceeds 20 billion dollars. The platform provides for the possibility of purchasing a significant number of cryptocurrencies, including Binance Coin, also for fiat currencies. Since the beginning of 2020, the platform has also offered the possibility to purchase cryptoassets in Croatian kunas. Even though trading in cryptocurrencies is not regulated, and can therefore not be banned, the platform also offers more complex (crypto)financial products, such as derivatives based on cryptoassets or tokens whose value is pegged to a stock price (stock tokens). These products are linked to classical financial instruments and markets, due to which Binance is currently in the focus of the attention of global and European financial market regulators.

Who supervises trading in cryptoassets?

Trading in cryptocurrencies at the EU-level and in Croatia is not regulated by financial services legislation, except in the part relating to the prevention of money laundering and terrorist financing. Since 2020, Hanfa has been in charge of the implementation of the Anti-Money Laundering and Terrorist Financing Act in the area of cryptocurrency trading, with respect to persons engaged in the provision of exchange services between virtual currencies and fiat currencies and/or the provision of custodian wallet services. As part of its supervisory activities, Hanfa monitors whether such persons implement all the measures and procedures prescribed by this Act.

Is there a register of licensed providers of exchange services between virtual currencies and fiat currencies?

The provision of exchange services between virtual currencies and fiat currencies and/or the provision of custodian wallet services is not regulated as regards the granting of their authorisation, i.e. their licensing by regulatory bodies. Hanfa therefore does not grant authorisation to persons engaged in the provision of exchange services between virtual currencies and fiat currencies and/or the provision of custodian wallet services. However, all companies registered in Croatia that provide these services are obliged to contact Hanfa pursuant to the Anti-Money Laundering and Terrorist Financing Act and are entered in Hanfa’s list of persons established in the Republic of Croatia and engaged in the provision of exchange services between virtual currencies and fiat currencies and/or the provision of custodian wallet services.

How safe is it to trade in virtual currencies?

Trading in virtual currencies and investing in cryptoassets are not regulated; there are therefore no specific investor protection arrangements and controls, as there are in the case of trading in shares or other classical financial instruments. These investments are speculative in nature and involve a high degree of risk due to their high volatility, but also due to other market risks. They can be particularly risky for retail investors, especially those who do not have all information on cryptocurrency features and/or enough knowledge in the area of finance and technology underlying cryptocurrencies. Particular attention should also be paid to misleading, fake cryptocurrency advertisements, as they are usually about fictive cryptocurrencies. Such ads copy articles in popular financial magazines, using fake celebrity endorsements that lure citizens into investing their money.

What is a cryptocurrency wallet?

In order to trade in cryptocurrency, you need to have a wallet that stores your cryptocurrencies. A cryptocurrency wallet functions like a bank account. It enables virtual currency transactions and storage, but unlike funds in a bank account, cryptoassets stored in a wallet are not protected by any guarantee scheme such as deposit guarantee schemes. When creating an account, i.e. opening a wallet, the system generates a unique private key (code) that you need to access your wallet and approve your transactions, similar to a bank PIN. The practice has witnessed frequent losses or thefts of crypto wallet private keys.

What if I lose or forget my crypto account/crypto wallet code?

All cryptoasset holders should be cautious about their unique private keys, i.e. crypto wallet codes, as there is no possibility of recovering your assets after you have lost or forgotten your private key. Pursuant to some surveys, about 20% of all bitcoins have been lost because their owners have lost or forgotten their codes.

What is the difference between transactions in cryptocurrencies and trading in financial instruments?

Trading in financial instruments is highly regulated. In order to trade, you need a financial intermediary, usually a financial adviser or broker, i.e. an investment firm. During the process, investment firms may also provide advice, as well as reject to carry out a transaction if they find it inappropriate for an investor.

The purpose of the Investor Compensation Fund, established within the investor protection system, is to secure claims of clients of companies authorised to provide investment services that are unable to meet their obligations towards the clients. It should be noted that the Investor Compensation Fund does not protect investors from market losses but only in the case where the company authorised to provide investment services fails to meet its obligations due to bankruptcy or where Hanfa has established an event of default.

Cryptomarkets do not have such investor protection systems, while the transactions are carried out and controlled by protocols allowing users to execute transactions without intermediaries. The users only need to register with a cryptocurrency exchange, after which they are able to trade in cryptocurrencies directly on their own.

What are the most common risks of trading in cryptocurrencies?

In addition to high market volatility, users are faced with a strong possibility of market abuse, such as false information, asymmetric information or false trading volume. Regulated trading system are strictly monitored for market abuse, and such activities constitute criminal offences and misdemeanours subject even to imprisonment. Due to a high level of digitalisation of cryptomarkets, there is also a high risk of phishing, i.e. identity, private key or account thefts via fake websites. Furthermore, investors are also exposed to frauds luring them into investments on fake websites and platforms. Given that such platforms are not regulated by any supervisory authority, the risk is considerable.

Can investment funds invest in cryptoassets?

Hanfa has recently approved the establishment of an open-ended investment fund with private offering for investing in cryptoassets. As an alternative investment fund, it is intended for professional and qualified investors and regulated by Hanfa pursuant to the Alternative Investment Funds Act.

Are there any signs of cryptomarket regulation?

The EU has been preparing a cryptomarket regulatory framework (Markets in Crypto-assets Regulation, MiCA), that should regulate entities providing services related to cryptoasset, such as the custody and management of cryptoassets for the account of third parties and provision of cryptoasset advice. Unlike now, crypto services should be allowed to be provided by legal persons with a registered office in an EU Member State that have received authorisation for the provision of such services from the competent authority. The Regulation should also govern cryptoasset issuers intending to offer cryptoassets or seeking an admission to trading on a trading platform for cryptoassets in the EU. MiCA is expected to come into force in 2024.




Traditional financial markets

No financial intermediaries, direct trading 


A financial intermediary needed 

High volatility, high risks, speculative market 


Lower volatility, depending on the financial instrument and related risks 

Non-regulated market, no laws or regulations governing trading


Regulated market, with laws and regulations governing the operation of companies 

No consumer protection system or compensation fund 


There is a consumer protection system and a compensation fund, and a possibility to turn to the regulator in case of irregularities


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